Next year may not see oversupply of homes

Source : Straits Times – 25 Jul 2009

GLUT? What glut? Fears of an oversupply of private homes next year have eased – in fact there could even be a shortage.

The Urban Redevelopment Authority’s (URA) second quarter real estate statistics, released yesterday, suggest any potential oversupply has been pushed back to 2011 or even later as private property developers delay and cut down on projects.

The number of private homes slated for completion for the whole of next year has fallen sharply to just 5,394.

That is down about 70 per cent from an estimated 17,454 early last year at the height of the last boom.

Just as developers have cut back on building, home buying has shot back up to boom-time levels.

For the past three months, more than 1,000 private homes have been sold each month. An average of 8,000 private homes have been sold each year since 2000.

This means that private home prices and rents could rise next year, as the supply of private property units in 2010 may not meet demand, especially if the current strong sales streak keeps up.

Caveats apply, of course, market watchers say. URA’s statistics rely on figures that developers have provided, and dramatic changes from quarter to quarter have occurred before.

Also, the number of completed units could differ from the number sold, as developers could sell uncompleted units or be unable to sell completed units.

According to URA statistics, during the last boom in 2007 and last year, developers – confident that people would snap up private homes – obtained licences to sell 11,150 private homes set to be finished this year, and 9,188 homes in 2010.

But the collapse of Lehman Brothers last September and the resulting recession triggered fears last year that there would be too many private homes on the market next year amid an economic slowdown.

Concerned that units would not sell, developers have since slashed some projects and pushed back the completion dates of others. As a result, URA’s figure for the total planned units slated for completion this year and beyond has fallen by 6,000 – from over 68,000 in the first quarter of 2008 to the current 62,350.

But although almost all of URA’s projected completion figures have declined gradually over the period from the third quarter of last year to the first quarter this year, the slide shows signs of having just bottomed out.

In the third quarter of last year it was projected that around 13,400-16,000 units would be completed every year after 2010. This fell to a range of 12,100-13,900 in the fourth quarter and then to 10,900-13,800 last quarter.

Although it still remains below pre-recession levels, this range has risen slightly in the last quarter to 11,200-13,600 units every year from 2011 onwards.

The bulk of project completions has been shifted from next year to 2011 and later, with project completion figures increasing by an average of 350 for each year from last quarter’s figures.

To date, 5,158 private units have been finished in the first half of this year, and URA expects 1,051 more units to be ready within the next six months.